Fast Food Workers Lawsuits Claim Relationship Between Franchiser And Corporate Parent Is Closer Than It Seems

Demonstrators demanding an increase in worker wages march to a Jack in The Box fast food outlet in Oakland, California December 5, 2013.
Reuters

McDonald’s workers have filed class-action suits in three states alleging the world’s largest fast-food chain engages in a several methods to keep payroll expenses down, including practices that violate federal labor laws such as not paying overtime, removing hours from their timecards and ordering them on and off the clock depending on consumer demand while expecting them to remain nearby to clock-in when needed.

The suits target Oak Brook, Ill.-based McDonald’s Corporation (NYSE:MCD), its U.S. subsidiary and franchise operators at a time when the nation is paying increased attention to low-hourly-wage practices by publicly listed companies. McDonald’s was targeted, the lawyers involved in the cases said, because of its outsized presence in the services industry, but they didn’t rule out future suits against other major quick-service restaurant chains like Yum! Brands (NYSE:YUM), which owns KFC, Taco Bell and Pizza Hut.

The seven lawsuits, including one in Los Angeles County Superior Court that was amended, could affect about 30,000 current and former employees, including about 25,000 in California. The suits were announced Thursday by lawyers representing the workers and labor-rights activists, supported by the Service Employees International Union, demanding that quick-service restaurant chains pay their employees at least $15 an hour.

“McDonald’s and our independent owner-operators share a concern and commitment to the well-being and fair treatment of all people who work in McDonald’s restaurants,” the company said by email on Thursday. “McDonald’s and our independent franchisees are committed to undertaking a comprehensive investigation of the allegations and will take any necessary actions as they apply to our respective organizations.”

The suits all contend that the parent corporation shares responsibility for all McDonald’s outlets even if they’re independently owned. Most of the company’s more than 14,000 outlets in the U.S. are franchises. McDonald’s Corporation brought in $9.3 billion from its franchised restaurants last year, a 3 percent increase from the previous year, according to the company’s regulatory filing. It paid out $3.1 billion in stock dividends to shareholders in the same period.

“If McDonald’s is going to engage with a very low-capitalized franchisee and impose a lot of restrictions and fees and other requirements, it can’t do that without being held responsible for any violations that happen,” said Catherine Ruckelshaus, general counsel at the National Employment Law Project, during a Thursday conference call. “These lawsuits could send an important message to franchisors and any other entities that insert businesses or individuals between them and their workers that they need to do that responsibly.”

The franchise system, says some labor rights activists, is used by the fast-food industry to separate the corporate parent from policies carried out by individual operators.

“Two industries that I could name off the top of my head [that have similar systems] are farming and garment,” said Jim Reif, of Gladstein, Reif and Meginniss, an attorney who filed the New York suit on Thursday. “In farming you have an entity called a farm labor contractor who is supposed to be the middleman that the farmer uses to try to insulate himself from the farmworkers. In garment you have the sweatshop operator who the garment manufacturer tries to use to insulate the manufacturer form the workers in the sweatshop. This is a recurring theme in a lot of different industries.”

But the lawyers bringing these suits contend that McDonald’s is more involved in franchise operations than it’s willing to admit. For example, they say both corporate-owned and franchise outlets are connected by a software labor-tracking network that monitors the ratio of sales to revenue in real time and warns store managers when specific employees are approaching overtime eligibility.

Here’s a rundown of the seven suits,

California

Four lawsuits in California claim McDonald’s and its franchisors failed to pay overtime when it was due, altered pay records and deprived their hourly low-wage workers of timely meal and rest breaks. One of the suits against makes similar claims on behalf of an estimated 25,000 McDonald’s employees in the state.

Michigan

Two lawsuits in Michigan against McDonald’s, its U.S. subsidiaries and two franchise operators running a combined 21 McDonald’s outlets in Metro Detroit claim that workers were expected to show up at a certain time and then at times asked to wait until enough customers show up before clocking in. The suits allege workers are also asked to clock out for extended periods under corporate-provided software that monitors the ratio of sales to labor costs in real time. When the ratio dips below a corporate-set target, workers are asked to clock out and wait until the ratio meets a specific target. While these wait times are considered off the clock, the suit claims it violates federal laws because employees are tethered to the store and must remain on the premises or close enough to clock in on short notice. Therefore when accounting for these period of down time and factoring it into the workers hourly rate, their hourly wage average dips below the local minimum wage rate, which would be a violation of federal labor law. The Michigan suits also claim these workers, who earn between Michigan’s $7.40 an hour minimum and $7.50 an hour, are forced to buy their own uniforms, a cost that would push some workers’ wages below the minimum hourly rate.

New York

In the suit filed in New York federal court claims workers were required to wash their own uniforms at their own expense without compensation. These outfits, part of the company’s branding, must typically be washed three or four times a week separately from other clothes because of the cooking grease and smell. The suit contends this is a violation of a New York state requirement that employers compensate employees for the cost of uniform maintenance. Since many of these workers make the $8 state minimum wage, the cost of washing the uniforms also would push the wage below the legal limit if washing the clothes were considered a work-related expense.

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